First Circuit Upholds NMFS Regulatory Flexibility Analysis in one of the first applications of amended Regulatory Flexibility Act to a rulemaking

In Associated Fisheries of Maine v. Daley, 127 F.3d 104 (1st Cir. 1997), the First Circuit upheld a rule adopted by the National Marine Fisheries Service under the Magnuson Act amending the Fishery Managament Plan (FMP) for the New England Groundfish Fishery. Responding to dramatic declines in stocks of haddock, cod, and other species, NMFS adopted Amendment 7 to its New England FMP. This amendment drastically reduced the allowable catch, and it was met with a challenge by an organization of fishermen. The challenge was both to the merits and procedure under the Magnuson Act, the authority for the FMP, and under the Regulatory Flexibility Act. Under the Magnuson Act, the fisherman argued that the amendment was arbitrary and capricious and violated the requirement in the Magnuson Act of considering the costs of enforcement in the required cost/benefit analysis. The court found a rational basis in the record for the amendment and concluded that the agency had provided a reasoned explanation for excluding enforcement costs -- that they would not increase from those under current law. With respect to the Regulatory Flexibility Act, there was an initial question whether judicial review under that Act was authorized. The court related the history of the Act -- that it had been passed in 1980 and required agencies to prepare initial and final Regulatory Flexibility Analyses (RFAs) analyzing the effect of the proposed and final rules on small businesses. Until its amendment in 1996, however, the Act had precluded any judicial review of these analyses (or agency decisions regarding them). While this amendment was not yet in effect when NMFS adopted Amendment 7, it was in effect when judicial review occurred. The question, then, was whether the judicial review provision would apply retroactively to the rulemaking that predated the amendment's effective date. The court applied the standards of the Supreme Court's recent retroactivity jurisprudence and concluded that it was unclear whether the judicial review provision applied retroactively, but it was clear that the substantive changes to an agency's initial and final RFAs were not to be applied retroactively. With the resolution of the jurisdictional question unclear, but finding that NMFS had clearly satisfied the requirements in existence at the time, the court upheld the regulation. In making its analysis, the court analogized the RFAs with Environmental Impact Statements (EISs) under the National Environmental Policy Act, including the conclusion that the Regulatory Flexibility Act does not impose substantive requirements to minimize impacts on small business, but requires analysis of the effects on small business to inform decisionmakers in consideration of alternatives that meet the regulatory goal.

Third Circuit also reviews and upholds agency action under the Regulatory Flexibility Act

In Southwestern Pa. Growth Alliance v. Browner, 121 F.3d 106 (3d Cir.1997), the Advanced Manufacturing Network (AMN)challenged Environmental Protection Agency's rule refusing to redesignate the Pittsburgh-Beaver Valley nonattainment area under the Clean Air Act; the basis of its challenge was EPA's alleged failure to comply with the Regulatory Flexibility Act. EPA, in adopting the final rule, certified that the rule would not have a significant impact on a substantial number of small entities and therefore no RFA was necessary. EPA had stated only that refusing the redesignation would not change the legal requirements applicable to any small entity. This, AMN argued, was merely conclusory. As in Associated Fisheries of Maine, the rule had predated the Regulatory Flexibility Act's 1996 amendment's effective date, but the judicial review post-dated it. Unlike the First Circuit, the Third Circuit concluded that under governing Supreme Court precedents the judicial review provision of the 1996 amendment did apply retroactively to rules adopted before the effective date of the amendment. Nevertheless, the court held that AMN could not raise the Regulatory Flexibility Act issue because it was never presented to EPA in the rulemaking. Despite the fact that EPA clearly knew that the Regulatory Flexibility Act applied to it, the court said that "generally, federal appellate courts do not consider issues that have not been passed on by the agency," (quoting from New Jersey v. Hufstedler, 724 F.2d 34, 36 n. 1 (3d Cir. 1983), a case involving review of adjudication, not rulemaking). In the alternative, however, the court held that EPA had satisfied the requirements of the Regulatory Flexibility Act.

DC Circuit refuses to defer to NLRB decision on audits of union calculations of agency fee offsets

In Communications Workers v. Beck, 487 U.S. 735 (1988), the Supreme Court recognized a right of non-union members required to pay an "agency fee" to unions in lieu of dues to obtain a fee reduction reflecting the actual cost to the union of the functions of collective bargaining, contract administration, and grievance adjustment. The Court did not specify how the reduction was to be arrived at or justified. In an earlier case, however, involving state employees raising First Amendment concerns with required fees allegedly subsidizing union propaganda, the Court had said that there must be "adequate disclosure . . . of the major categories of expenses, as well as verification by an independent auditor." Chicago Teachers Union v. Hudson, 475 U.S. 292 (1986). Nevertheless, in the private union context, the NLRB took the position that an independent auditor was not a necessity. It reasoned that Chicago Teachers Union, involving public unions, was based upon First Amendment concerns not present in the private employment context. In Ferrriso v. NLRB, 125 F.3d 865 (D.C. Cir. 1997), the DC Circuit held that the NLRB's interpretation was "not rational." The court acknowledged that under the National Labor Relations Act the treatment of accounting for agency fees was unclear, so traditionally the court would apply Chevron deference. Here, however, the court found the agency's rationale for its decision based upon an incorrect interpretation of Chicago Teachers Union. Thus, this case follows what has become an increasingly consistent pattern of courts refusing to apply Chevron deference, when that deference would implicate judicial interpretations of statutory or regulatory requirements, rather than merely agency interpretations of statutory or regulatory language.

Second Circuit holds that FERC has no power to second-guess State certifications under the Clean Water Act

Under the Clean Water Act, before any federal agency may grant any permit that may result in a discharge into waters of the United States, the applicant must provide the agency a certification from the State that the licensed activity will comply with State water quality standards. In American Rivers, Inc. v. Federal Energy Regulatory Comm'n, --- F.3d --- (2d Cir. 1997), Vermont had provided a certification to an applicant seeking a hydropower license from FERC, but the certification contained a number of conditions. FERC believed that some of these conditions were ultra vires because they did not relate to state water quality standards. Consequently, FERC granted the license but refused to include those conditions as conditions on the license. The Second Circuit concluded that this action by FERC was ultra vires. The court found the statutory language unequivocal: a federal agency cannot grant a license unless the certification has been made, and "any certification . . . shall become a condition on any Federal license. . . ." If FERC believes an aspect of the certification is unlawful, it may deny the license. If the applicant for the license believes an aspect of the certification is unlawful, it may challenge it in State court. However, it is not an option for FERC to edit the certification in the manner it sees fit.

DC Circuit rejects EPA rule providing one-year grace period for transportation activities in non-attainment areas to be in conformity with State Implementation Plans

Under the Clean Air Act, transportation projects in non-attainment areas cannot receive federal funding unless those projects conform to the requirements of approved State Implementation Plans. If there is no approved SIP at the time, the project must demonstrate that it will contribute to emission reductions. In 1995 EPA promulgated regulations indicating how projects could show that they conformed to the SIP and providing a one-year grace period to areas which previously had been in attainment but had been reclassified as non-attainment. The Sierra Club challenged the grace period as beyond EPA's statutory authority in Sierra Club v. Environmental Protection Agency, --- F.3d --- (D.C. Cir. 1997). EPA argued that the statute authorized it to adopt regulations setting "the appropriate frequency for making conformity determinations." The DC Circuit, however, concluded that this provision of the statute only authorized EPA to determine the timing of its conformity determinations, not to determine when someone had to be in conformity. The court found the grace period precluded by the plain language of the statute, which does not mention any grace period.

DC Circuit thwarts constitutional challenge to NAFTA's binational panel review provisions by invoking both an exhaustion requirement and standing requirements

Interested persons who believe that a person is "dumping" goods into America or is receiving inappropriate subsidies for exporting goods to the United States may file a complaint with the International Trade Administration of the Department of Commerce. If the ITA determines such activities are occurring, the United States International Trade Commission then determines whether these activities are injuring a United States industry. Under the North American Free Trade Agreement implementation legislation, if the goods are imported from Canada or Mexico, persons who participated in the administrative proceedings may seek review in a binational panel consisting of representatives of both the United States and the other country. This panel can affirm the administrative decision, or it can remand the case to the agency for further action consistent with the panel's decision. Private parties cannot appeal or otherwise obtain review of the panel's decision. Moreover, the panel cannot itself consider the constitutionality of its proceedings; the D.C Circuit is given exclusive original jurisdiction over constitutional challenges to the binational panel review provisions. In American Coalition for Competitive Trade v. Clinton, --- F.3d --- (D.C. Cir. 1997), an organization dedicated to protecting American jobs from unfair trade practices, challenged the constitutionality of the binational review panel procedures, alleging that they violate United States sovereignty, Article III, due process, and the appointments clause. The D.C. Circuit initially decided that ACCT failed to establish standing because it did not indicate how any of its members had actually been injured by any binational panel review proceeding. None of its members had ever participated as an interested person in any such proceeding. In addition, the court held that even if it had standing, ACCT would not have satisfied the statutorily required exhaustion procedures in the statute, which permits D.C. Circuit review for constitutionality only when the challenge is brought by a person who has participated in a binational panel review within 30 days of a panel decision. ACCT also challenged the constitutionality of the exhaustion requirement, because it limits persons with Article III standing from bringing constitutional claims to courts. The court made short work of this argument, reminding the organization that exhaustion requirements as a prerequisite to judicial review, even of constitutional claims, is the norm in judicial review of agency action.

Fourth Circuit limits EPA's ability to enforce its interpretation of certain Clean Air Act regulations until agency had given actual notice of that interpretation to regulated party

Under the National Emission Standards for Hazardous Air Pollutants program (NESHAPS) of the Clean Air Act, EPA has promulgated regulations governing the fugitive emissions of benzene. Those regulations, however, exempt equipment at a plant "designed to produce or use less than 1,000 megagrams of benzene per year." A company "used" benzene in a closed system that used the same benzene over and over again. If the total amount of benzene lost to the system were measured (the "net use"), it would be less than 1,000 megagrams, but if each use of the benzene was separately counted, it would far exceed 1,000 megagrams. As it was, the company was in the top 5% of all sources of benzene leaks to the environment. The company believed itself to be exempt and therefore never filed reports nor complied with any of the substantive requirements. EPA, however, interpreted the regulations to require consideration of the total throughput of the system, not the amount consumed or lost in the process, and it proceeded against the company for years of violations. United States v. Hoechst Celanese Corp., --- F.3d --- (4th Cir. 1997). The first question was whether EPA's interpretation was correct. Much argument apparently went to whether the court should "defer" to the agency's interpretation, not contained in any regulation or published document, given the form in which the intepreation was made -- in letters to regulated entities, including one to this company in 1989. The court concluded that it should defer to the agency's interpretation, and the court stated that "EPA's interpretation accords with the plain language of NESHAPS, as well as the purposes of the Clean Air Act and of the exemption itself." The next question was, even if the interpretation was correct, did the company had fair notice of EPA's interpretation, because, as the court said, civil penalties are quasi-criminal in nature, and therefore due process requires fair notice. EPA argued that the plain meaning of the regulations should have indicated to the company that it was not exempt. The court, however, determined that the regulations did not "mandate" EPA's interpretation. At least, EPA further argued, the regulations were clear enough that the company should have been put on notice of some problem and therefore have sought clarification from EPA, as many other companies did. The court noted that the company had gone to a state agency that EPA had authorized to implement and enforce NESHAPS, and that agency interpreted EPA guidance to require the total inventory of benzene to exceed 1000 megagrams. On the basis of that interpretation, the company determined that some of its plants were exempt, and it sought a temporary waiver for one plant so that it could reduce the amount of benzene consumed to less than 1000 megagrams, thereby becoming exempt. This waiver request was sent to the state agency with a copy to EPA Region 6. The state agency granted the waiver, and EPA Region 6 did nothing. The court indicated that these facts, in the absence of actual knowledge of EPA's contrary interpretation, gave the company reason to believe that its interpretation, supported by the state agency, was correct. In 1989, however, EPA's Regional office became aware of the company's situation and informed it that if it recycled benzene, so that the throughput exceeded 1000 megagrams, it was subject to NESHAPS and the fugitive emissions rule. The company disputed EPA's interpretation and did not comply. Now, the court concluded, the company was on notice as to EPA's interpretation and therefore could be liable from that date.